Old acquaintance/colleague Igor Sutyagin freed in "spy swap"

Igor Sutyagin was an arms control researcher at the USA and Canada Institute, which has had a close relationship to my old employer, the Center for Naval Analyses, since Cold War's end. As a result, when I was sent over to Moscow in 1995 to consult with Russian naval flags on the future of U.S.-Russian naval cooperation, Igor was my handler/guide to facilitate meetings.  I found him to be a most excellent fellow and diligent researcher. He was later accused of spying for the US and was clearly railroaded into a conviction in 2004. Word was he suffered mightily in prison, health-wise, so I know everybody who cared about him is ecstatic to hear about his release and wish him well in his new life.

Once more, Turkey leaps into the void!

WSJ story on how Turkey is becoming the diplomatic center of gravity in the Balkans, replacing the US and EU, who were getting nowhere on securing a new constitutional settlement on Bosnia because the Russians were being unhelpful.

So Ankara steps in about a year ago in an effort to foster dialogue among Serbia, Bosnia and Croatia.

Unlike in the Middle East, Turkey’s efforts in the Balkans have largely been welcomed by the West.

A great review comes by way of a former strategic analyst for the Office of the High Representative for Bosnia:

If you compare the solo Turkish diplomatic efforts to everyone else’s in the past six months, they are the only people who got anything done at all.

Nice work if you can hack it, and if you can hack it, won't you tell us how?

Because what goes around, comes around

Couple of WSJ stories.

Beijing lets Google keep a toe-hold in China while Baidu’s grip on domestic searches reaches dominance level at nearly two-thirds.

Still, the Party does well by not shutting out Google completely, because soon enough, Western markets will retaliate more fully against would-be entrants like telecom equipment provider Huawei, which is already fighting an uphill battle in India.

The more China plays this game at home, the more it will face the same abroad.

Brief Reminder: Y2K Scenario Dynamics Grid (1998)

Made this after one of our initial expert workshops on Y2K in 1998.

The six-phase sequence across the top, with the four domains down the left side.

Each box presents the leading scenario dynamic per the phase-domain combo, with the red-arrow designations defining the dynamic that marks the shift to the next phase--or signposts to watch (like the appearance of "Y2K and you" literature from the government to deal with the perceived "credibility gap" in the initial "Mania" phase).  The red circles in the last phase suggest the "new X" legacies that arise in the aftermath.

I used to love briefing this slide, although it took a while.

Not the greatest predictor on Y2K--once the Onset proved pretty mild, but an interesting prediction/capture on 9/11 and beyond in terms of the Onset, Unfolding, Peak & Exit phases.

Blast from my past: The Seven Deadly Sins of Network-Centric Warfare

The Seven Deadly Sins of Network-Centric Warfare

by Thomas P.M. Barnett

COPYRIGHT: The U.S. Naval Institute, 1999 (January issue, pp. 36-39); reprinted with permission

Most of us . . . read Vice Admiral Art Cebrowski's seminal 1998 Proceedings article on network-centric warfare (NCW), and if some detected a confidence too bold, that is only to be expected.  Visions of the future invariably rankle, especially when they seem inevitable.  Quoting Liddell Hart, "The only thing harder than getting a new idea into the military is getting an old one out," Admiral Cebrowski and coauthor John Garstka threw down the gauntlet and dared anyone to prove them wrong.

Would that I could, but the best I can muster is a devil's advocate take on what I see as network-centric warfare's seven deadly sins.  Note that I don't say "mortal sins."  As with any transgression, penance can be made.

1. Lust

NCW Longs for an Enemy Worthy of Its Technological Prowess

If absence makes the heart grow fonder, network-centric warfare is in for a lot of heartbreak, because I doubt we will ever encounter an enemy to match its grand assumptions regarding a revolution in military affairs.  The United States currently spends more on its information technology than all but a couple of great powers spend on their entire militaries.  In a world where rogue nations typically spend around $5 billion a year on defense, NCW is a path down which only the U.S. military can tread.

Meanwhile, our relatively rich allies fret about keeping up, wondering aloud about a day when they won't be able even to communicate with us.  These states barely can afford the shrinking force structures they now possess, and if network-centric warfare demands the tremendous pre-conflict investments in data processing that I suspect it does, then the future of coalition warfare looks bleak indeed.  Not only will our allies have little to contribute to this come-as-you-are party, they won't even be able to track the course of the "conversation."

As for potential peer competitors, forget about it—and I am not just talking money.  I am a great believer in the "QWERTY effect," by which technological pathways are locked in by market victories of one standard over another.[1]   No one would argue against the notion that the United States is QWERTY Central, or that our military feeds off that creativity.  So the reality facing, any potential enemy is that he either has to get in line behind our QWERTY dominance or satisfy himself with chintzy knockoffs from our far-distant past.  So when Iran gets itself some North Korean missile technology, let's remember that it is only a poor copy of old Chinese technology, which is a poor copy of old Soviet technology, which is a poor derivative of old Nazi-era German technology—and, as everyone knows, our German scientists were better than their German scientists!  This is why proliferation is always a lot slower than suggested by too many hyperbolic experts.

Once you get past the potential peer competitors, you are entering the universe of smaller, rogue enemies that many security experts claim will be able to adapt all this information technology into a plethora of brilliant asymmetric responses—the Radio Shack scenario.  Frankly, it stretches my imagination to the limit to conjure up seriously destabilizing threats from resource-poor, small states, unless we let our lust for a bygone era distort our preparations for a far different future.

2. Sloth

NCW Slows the U.S. Military's Adaptation to a MOOTW World

Military operations other than war (MOOTWs) are the closest thinly to a sure-bet future the U.S. military faces right now, and network-centric warfare does not yet answer that mail.  Beyond the affordability issues, there is the larger question of what "networked" should mean for the U.S. military:  Wiring-up among ourselves?  Or wiring ourselves up more to the world outside? 

This is not an esoteric question for naval forces, because I see a future in which the establishment of, and support to, information networks is the crucial U.S. naval product delivered overseas to internal crises, where confusion, complexity, and chaos are the norm.  We are far more likely to be called on to be the deliverers of clarity and context than sowers of blindness and vertigo, and we are far more likely to be asked to settle down all sides in a conflict than to decimate one particular side.  This is where NCW's "lock-out" phraseology misleads: we will be interested in opening up pathways to resolution, not closing down pathways of conflict.  That reality speaks to non-lethal approaches, reversible effects, and keeping open the channels of communication.

Increasingly, naval forces will be called on to serve as a "node connector," rather than a "node destroyer."  I am talking not only about bringing crisis-involved regions back on line, but also about the military acting as Network Central for the wide array of U.S. and international agencies that populate any U.S.-led response to complex humanitarian emergencies.  Just as important as our ability to talk among ourselves during, the generation and coordination of large-scale violence will be our ability to generate and coordinate the conversations of many outsiders in the prevention of small-scale violence.

Correctly focused, network-centric warfare would allow the U.S. military to come into any crisis situation and establish an information umbrella to boost the transparency of everyone's actions.  Incorrectly focused, it might hamstring us along the lines of the Vietnam War.  In sum, NCW's quest for information dominance is self-limiting in an era that will see the U.S. military far less involved in network wars than in mucking around where the network is not.

3. Avarice

NCW Favors the Many and Cheap; the U.S. Military Prefers the Few and Costly

Many experts rightly claim that network-centric warfare is nothing new as far as the U.S. Navy is concerned.  By its nature, our worldwide, blue-water Navy always has been a networking environment.  Of all the major services, it should find the onset of NCW least discombobulating.  But it is no secret to anyone who has followed Navy force structure decision making this decade that we consistently have sacrificed ship numbers to technology, even as we decry the resulting stress on operational tempo and global presence. 

What we are ending up with is a Navy poorly situated for an NCW era in which the network's crucial strength is its flexibility to degrade gracefully.  Some point out that cruise missiles and unmanned aerial vehicles are good fixes because they allow surface combatants to operate in a standoff mode.  But the future fleet cannot consist of a dozen huge platforms sitting in the middle of the ocean remotely directing operations because we as a country cannot risk losing any of these hyper-tech behemoths.  NCW's bottom line must be that no node can be worth more than the connectivity it provides.

Because we are far more likely to encounter targets of influence operating in the "few and cheap" paradigm, what we should bring to the table are "the many" as opposed to "the costly."  Why?  The few-and-costly approach puts us in no-win situations, where our entry into crises is self-limited by our tendency—and our opponent's knowledge of that tendency—to treat the loss of any significant network node as grounds for one of two equally bad pathways: escalation or withdrawal.  Because our interests typically are limited, escalation usually is the last thing we want.  But because the world values our Leviathan-like role as global force of first response and last resort, a pattern of withdrawals over relatively small losses costs us dearly over the long run.  A superpower navy too valuable to risk force structure losses is not one worth having.  Does that mean we risk more lives?  Only if we insist that the U.S. Navy primarily is about projecting destructive power ashore.

4. Pride

NCW's Lock-Out Strategies Resurrect Old Myths about Strategic Bombing

Ever since Giulio Douhet's Command of the Air (1921), we have heard that massed effects against an enemy's centers of gravity can lead swiftly to bloodless victory.  And every war since then has seen this theory's vigorous application and subsequent refutation.  Yet the notion persists and now finds new life in network-centric's "lock-out" strategy.  Whether NCW's proponents admit it or not, what lies at the core of this strategy is the spurious notion that punishment equals control.

Can we, by destroying our enemy's information technology "village," somehow save it?  I think not.

First, one man's information warfare is another man's international terrorism.  If any hostile power tried even a smidgen of what we propose to do en masse via NCW, we would be hurling all sorts of war crimes accusations.  The collateral damage associated with this "information technology decapitation" strategy simply is too complex to control from afar.  Who dies?  Society's weakest and most vulnerable.  Unless we are talking total war or some antiseptic battlefield out in the middle of nowhere, we need to own up to the reality that such massed effects are closer to weapons of mass destruction than we care to admit.

Second, our bomb-damage assessment capabilities are nowhere near capable enough to measure the massed effects of NCW's souped-up brand of information warfare.  Some assume that the smaller a society's information technology quotient, the greater our ability to understand the impact of information warfare.  But in my mind, less information technology equals greater social capacity for low-tech work-arounds that either negate or complicate information warfare immeasurably.

Third, while bowing to complexity theory, NCW adherents toss it out the window once they rhapsodize about lock-out strategies.  Somehow, our mastery of our enemy's complexity will translate into a capacity to steer his actions down one path or another, despite the fact that NCW's game plan includes large amounts of irreversible impact.  What we may well end up with in some blossoming conflict is a "dialogue of the deaf" that precludes effective communication with the other side concerning conflict resolution or—more important—avoidance of unnecessary escalation.  And when that happens, we may wonder which side really had its pathways locked out.

Fourth, NCW is guilty of mirror imaging: we theorize about our own information technology vulnerability and then assume it is the same for others.  In reality, our distributed society is far stronger than we realize.  In truth, is there any other country in the world where you would prefer to live through a natural disaster?  As for less-advanced countries, our arrogant assumptions about their limited work-around capacity say more about us than about them.

Fifth, to the extent that network-centric's immense capabilities can be harnessed to a lock-out strategy, the military needs to relate better to the universe of relevant data and subject-matter experts outside the usual realm of political-military thinking.  We do not possess the decision-assessment tools at this point to steer an opponent via information dominance.

5. Anger

NCW's Speed-of-Command Philosophy Can Push Us into Shooting First and Asking Questions Later

The unspoken assumption concerning speed of command seems to be that because we receive and process data faster, we have to act on it faster.  Not surprisingly, this virtuous circle can turn vicious rather quickly if commanders allow themselves to become slaves to their own computers, which essentially are dumb machines that count incredibly fast.  Rushing to bad judgment is the danger.

Most worrisome are network-centric's assumptions concerning getting inside the enemy's decision loop.  This makes sense as a goal, but the real focus should be on what we do once inside, not just on the blind pursuit of faster response times.  Why?  We always are talking about potential enemies with less advanced information technology architectures, so the potential for miscommunication and misperception is huge.  We may find ourselves acting so rapidly within our enemy's decision loop that we largely are prompting and responding to our own signals, which our beleaguered target cannot process.  In short, we could end up like Pavlov's dog, ringing his own bell and wondering why he's salivating so much.

It takes two to tango, so, yes, we want sufficient speed of command to get inside our opponent's decision loop, but too much speed turns what we hope is a stimulus-response interaction into a self-stimulating frenzy.  The potential irony is telling:

We rapidly fire signals to a target of influence, who does not pick them up, in part because of the strategic blindness we have inflicted on him.

• Our target’s lack of response is interpreted as signifying "X" intent.
• We respond to perceived intent "X" with signal "Y," which also is missed by our target, who, perhaps, is just getting a grip on earlier signals.
• Our target's response "Z" seems incomprehensible, or we assume it is a rejection of sorts to our previous signals.
• Before you know it, we are way beyond "Z" and into some uncharted territory, but we are making incredible time!

The networked organization's great advantage is that the processing and distribution of data are sped up considerably.  What this should translate into is increased time for analysis and contemplation of appropriate response, not a knee-jerk ratcheting down of response time.  The goal is not to shorten our decision-making loop, but to lengthen it, and, by doing so, improve it.  Otherwise, all we are doing is generating two suboptimal decisions to his one.

Now, some will declare that the enemy's decision loop is being shortened by his increasingly rapid incorporation of information technology into his command-and-control architecture.  But this Chicken Little approach misleads: yes, he will improve his decision-loop timelines constantly, and so should we.  But the point is not to engage in some never-ending speed race with our own worst-case fears, but rather to concentrate NCW on how best to exploit the delta between our loop time and his.  Speed is not the essence here, only the means to an end.  Forget that and you might as well be acting in anger.

6. Envy

NCW Covets the Business World's Self-Synchronization

There is no defense establishment more concerned with everyone singing off the same sheet of music than the U.S. military.  Why?  No military in the world seeks to decentralize crucial decision-making power as much.  It is both our calling card and our greatest weapon—our operational flexibility.  So if any military will adapt itself to NCW's ambitious goal of self-synchronization, it will be us, though we are not likely to reach the ideal state of affairs desired by network-centric warfare, which I believe seeks a dangerous slimming down of the observe-orient-decide-act (OODA) loop. 

The implied goal of self-synchronization is that information technology will facilitate such a rapid movement of information as to obviate the time requirements of the "00" portion, allowing commanders to exploit speed of command.  But in my mind, NCW's capacity to collapse timelines for the processing of operational data should lengthen the observe and orient portions of the loop, not encourage their virtual disappearance by outsourcing that cognitive function to silicon units.  During the Cold War, a sort of "DADA loop" was forced on the U.S. military by certain bolt-from-the-blue warfighting scenarios involving the Soviet Union.  But I am hard-pressed to envision post-Cold War scenarios where the U.S. military should be encouraged to deemphasize the rational thinking that must periodically interrupt whatever courses of action our commanders in the field are empowered to pursue.

NCW's envy for the business world's market-responsive notion of self-synchronization is understandable, for there are few things in this world as complex as a major military operation.  But this envy is misplaced; we create governments to deal precisely with those thorny aspects of social life that we do not trust private firms to manage under the ultimate self-synchronizing motivation known as profit seeking.  And among the thorniest aspects are those we reserve for the military, entrusted as it is with the assets that generate big violence.

In addition, the crisis scenarios the U.S. military faces grow ever more ambiguous as far as U.S. national interests are concerned.  Other than a rerun of Desert Storm, I don't see any crises where the United States would be well served by its military focusing on self-synchronization.  A MOOTW world should encourage greater externally focused networking.  So even if the U.S. military could achieve self-synchronization, neither the likely scenarios nor the partners we engage in them are well suited to this slam-bang approach.  In fact, in many MOOTW scenarios, it is the military that should use its mighty information technology power to generate the "00" portion of the decision loop for others who ultimately will take the lead in deciding and acting.

7. Gluttony

NCW's Common Operating PictureCould Lead to Information Overload

The term "common operating picture" is apt for network-centric's vision of all players at all levels working off the same mental model.  There is little doubt that computer-mediated visual presentations will shape much of the commander's perception of operational realities.  That, in and of itself, is not new.

What is new is the potential for inundating all participants with an ever-increasing flow of data masquerading as information because it has been slickly packaged within the common operating picture.  The danger lies in the picture's collapsing all participants' perceptions of what is tactical versus operational versus strategic, and, by doing so, creating strong incentives for all to engage in information overload in an attempt to maintain their bearings in this overly ambitious big picture.  In sum, I am concerned that the push for speed of command and self-synchronization will drive all participants to an over-reliance on the common operating picture as a shared reality that is neither shared nor real. 

The common operating picture cannot really be shared in the sense that ownership will remain a top-down affair.  What is scary about NCW's ambition is the strain it may put on commanders at various levels to integrate the commander's intent from all other commanders and not just up the chain of command.  NCW promises to flatten hierarchies, but the grave nature of military operations may push too many commanders into becoming control freaks, fed by an almost unlimited data flow. In the end, the quest for sharing may prove more disintegrating than integrating.

The infusion of information technology into hierarchical organizations typically reduces the traditional asymmetries of information that define superior-subordinate relationships.  Taken in this light, the common operating picture is an attempt by military leaders to retain the high ground of command prerogative—a sort of nonstop internal spin control by commanders on what is necessarily a constantly breaking story among all participants, given their access to information that previously remained under the near-exclusive purview of superior officers.

That gets me to the question of the common operating picture's "realness," for it suggests that the picture will be less a raw representation of operational reality than a command-manipulated virtual reality.  At worst, I envisage command staff engaging in a heavy-handed enforcement of commander's intent, all in the name of shaping and protecting the common operating picture.

The temptation of information gluttony always will be with NCW.  Salvation lies in the concept of information sufficiency by level of command.

*                    *                    *

I seek not to praise network-centric warfare, nor to bury it.  To the extent that NCW marries the military to a networking paradigm, it moves America's defense establishment toward a future I view as inevitable. However, focusing NCW on the application of large-scale violence, or past wars, is a mistake—especially for naval forces. On a global scale, both organized violence and defense spending have migrated below the level of nation-states. For our military to remain relevant, it must reach out to that subnational environment. Networking is the answer, but it needs to be focused outwardly.  This was the natural role of naval forces in U.S. history.  It can be again, but only if the Navy frees itself from its Pacific War past and pointless competition with the Air Force in power projection.

[1] QWERTY refers to the first six letters on the upper left of the typewriter keyboard.  This layout was adopted in the 19th century to minimize jamming of mechanical striking arms.  It quickly became the universal standard and remains so to this day, despite being less efficient than other designs.

Dr. Barnett holds an appointment as Professor and Senior Decision Researcher at the Decision Support Department, Center for Naval Warfare Studies, U.S. Naval War College.  This article is adapted from an essay he wrote for the Center for Naval Analyses, where he served on the Research Staff from 1990 to 1998.  Dr. Barnett holds a Ph.D. in Government from Harvard University.  He would like to thank the following individuals for their comments on earlier drafts: Jack Batzler, Lyntis Beard, Gary Federici, Hank Gaffney, Bradd Hayes, Lawrence Modisett, Hank Kamradt, Rob Odell, Pat Pentland, and Mike McDevitt.

The global imbalances equation: unchanged

Depressing bit from WAPO's Neil Irwin about how little has changed structurally since the Great Recession began:

The catastrophic economic downturn that began two years ago was supposed to shake up the global economy, ending an era in which Americans consumed too much and saved and exported too little.

But the recovery is being driven by a return to the very global imbalances that were a major cause of the crisis. Americans' savings rates have fallen over the past year, imports are rising faster than exports, and countries around the world are again turning to Americans to be the consumers of last resort.

"Despite all the good words and good intentions, I'm afraid we're going back to the same conditions that led us into this mess to begin with," said C. Fred Bergsten, director of the Peterson Institute for International Economics.

That's partly because countries around the world view those old ways, while dangerous over the long term, as the quickest option to power out of the deep economic decline. For China, Japan and Germany, that means exporting vast volumes of goods, saving too much and spending too little; for the United States, and to varying degrees Britain and other European nations, it is the reverse.

These trends are deeply ingrained in countries' policies and individual decisions by their citizens, such as the lack of a social safety net in China that causes people to save more and the mortgage-interest deductions in the United States that encourage people to take on more debt.

World leaders have pledged to guide the global economy away from those imbalances. Just this week, President Obama renewed his call for a doubling of U.S. exports. But that has been made more difficult given that the value of the dollar has risen 7.5 percent against other major currencies this year, making American exports more expensive.

Meanwhile, leaders in Germany and Japan have turned their focus to reducing budget deficits, but the rest of the world would benefit if those countries spent more aggressively, increasing their consumption.

The United States has been like a customer who outspends his paycheck by receiving store credit. The store -- in this case, China, which buys vast quantities of U.S. Treasury bonds -- essentially funnels its profit back to the customer in the form of more credit. Everybody is better off for a while; the customer gets more stuff, and the store does more business.

But that relationship can't go on forever.

Makes you wonder what level of crisis is required for real change.

I retreat to my old analysis:  this crisis caught both China and the US about a decade too early. China needed more time to develop and gain confidence re: necessary reforms and reorienting more heavily toward domestic consumption, while the US needed a new generation of political leadership to emerge.  Obama was the leading edge, all right, but not transformational enough on his own to create or lead the economic change, in part because of the perceived hostility between him and business.

Kurdistan pursues its own economic connectivity with Iran

 

NYT piece on how the Kurds are facilitating Iranian oil exports, pocketing the profits in a way than angers Baghdad.

Analysts say that the Kurdish region’s oil trade with Iran provides a revenue source that it does not have to share with Baghdad, at least for now, diminishing its reliance on exports to Turkey. It also grants them leverage in resolving oil and internal border disputes with Baghdad.

“They can negotiate from a position of strength,” says Ruba Husari, an oil specialist and founder of Iraqoilforum.com. “They are running their own oil kingdom.”

But questions about the legitimacy of the region’s oil activities are increasingly coming from within.

“Kurdistan is like an island with no rule of law when it comes to oil,” says Abdulla Malla-Nuri, a member of the region’s Parliament from the Gorran opposition movement, which broke away from one of the governing parties last year and has accused them of rampant corruption.

Kurdistan is acting in its own best interests, as one might expect of a state-within-a-state.  The US under Obama hasn't exactly gone out of its way to work with the Kurds, and they return the favor.

More aid versus better government: the illusion of Live Aid's success--in retrospect

Brutal bit of analysis in WSJ op-ed by John-Clark Levin (who has a hyphenated first name, I ask you?).

Ground zero for the famine 25 years ago was Ethiopia, hence my newly heightened interest.

$283M raised, but a subsequent BBC investigation says that "so much of the money went to arms instead of food that it may have prolonged and deepened Ethiopia's humanitarian catastrophe."

The later UN relief effort in Somalia wasn't much better, as 80% of the food aid was stolen, such was the bad security situation, which only stabilized after the US Marines showed up in 1992.  Once we withdrew after "Black Hawk Down," the situation once again deteriorated there.

Now fast forward to 2006, when severe drought once again struck. This time, Kenya and Ethiopia, with relatively stable governments, were able to cope far better than lawless Somalia. The easing of food shortages in the Congo over the past five years happened for similar reasons--better local governance.

Levin's point:  "Famine and poverty cannot be solved with charity alone.  We can only stop them by putting an end to corruption and instability."

A certain administering to the system, I might call it. 

The remapping of Somalia proceeds

Economist story on Somaliland's relative stability as evidenced by recent elections. Somaliland is "pushing for international recognition and has been building a democratic state."  Prez election in 2002 and parliamentary one in 2005.

Pet theme of mine: wherever US troops are pulled into intervening in the post-Cold War world, there usually arises multiple states--sort of a reverse of e pluribus unum that reads, "out of one, many."

We went to Yugoslavia and there's now a cluster of states. We went to Iraq and there's now a Kurdish mini-state to the north coexisting with the Shia-dominated Arab south. We went to Afghanistan and that country too is well on its way to de facto partition between the north and south.

Finally (albeit almost two decades ago), we went to Somalia and now there's Somaliland, Puntland, the rump in the middle, and what Al Shabaab (successor to the Islamic Courts Union) owns in the south.  Somalia isn't so much a failed state as a series of mini-states being born, with varying levels of success/acceptance.  

Some "empire."  We really just play midwife to globalization's remapping dynamic, which is itself a correction of the fake-states created by European colonialists in the first great iteration of globalization more than a century ago.

The cyber "shield" in the making

WSJ story on planned federal government initiative "Perfect Citizen" to detect cyber assaults on private companies and gov agencies running critical infrastructure.  Naturally, it will be a vast and expanding program--a la the WAPO series by Priest and Arkin.

The surveillance by the National Security Agency, the government's chief eavesdropping agency, would rely on a set of sensors deployed in computer networks for critical infrastructure that would be triggered by unusual activity suggesting an impending cyber attack, though it wouldn't persistently monitor the whole system, these people said.

Defense contractor Raytheon Corp. recently won a classified contract for the initial phase of the surveillance effort valued at up to $100 million, said a person familiar with the project.

An NSA spokeswoman said the agency had no information to provide on the program. A Raytheon spokesman declined to comment.

Some industry and government officials familiar with the program see Perfect Citizen as an intrusion by the NSA into domestic affairs, while others say it is an important program to combat an emerging security threat that only the NSA is equipped to provide.

Hard to argue against some government effort to surveil the critical infrastructure domain, and hard not to see the effort stay fairly secret, because as I learned with Y2K, the critical infrastructure industry isn't exactly interested in advertising its vulnerabilities.

Those uppity Chinese workers . . . in Japan!

Pair of Economist stories.  First one is on how restive Chinese workers in China are changing the management practices of Japanese companies there--not easy to do.

Key point: 

The labour-market troubles are an aspect of China's shift from being the world's workshop to its shopping mall: as employees demand and get higher incomes, the country's attractiveness as a manufacturing base ebbs but its appeal as a consumer market grows.

Remember that as you calculate the Chinese economic "threat" in coming years.

Second story notes how badly Chinese worker-trainees in Japan are treated and how they're already turning to suicide to voice their concerns (those Chinese, they never do anything half-way).

Says Lila Abiko, of the Lawyers' Network for Foreign Trainees:

Japan is the richest country in Asia, yet this programme is exploiting poor Chinese like slaves.

Japan better clean up that act as its population ages . . ..

Ah, the joys and sorrows that is Asian integration!

Asia comes to the Middle East in due course

 Just so no one thinks I'm picking on Foreign Policy, here's a great piece from Geoffrey Kemp (also via WPR's Media Roundup, that should have placed it topside) that elaborates on a point I've made for years:  Asia is coming militarily to the Middle East, just like we did before, and for all the same logical reasons.  Our choice is how we channel their interest, not how we block it or contain it or hedge against it.

Kemp's opening:

The United States has become accustomed to its hegemonic military presence in the greater Middle East. The U.S.-led international coalition against Iraq after its invasion of Kuwait in August, 1990 led to a massive increase in America's direct military presence in the Gulf. Its military presence accelerated after the 9/11 attacks and the subsequent wars in Afghanistan and Iraq. Today, U.S. forces are deployed all the way from the Sinai desert through the Arabian Peninsula, Persian Gulf, Arabian Sea and Indian Ocean, as well as Afghanistan. While the U.S. has come to take its unchallenged military primacy in the Middle East for granted, key Asian countries -- especially India, China, Japan and South Korea -- have also increased their Middle East presence. The U.S. shouldn't view this as a threat but rather an opportunity for greater cooperation on a wide spectrum of growing security concerns.

Even better:

In many ways an increased growing Asian presence in the Middle East will bring a breath of fresh air to a region left with the bitter historic legacies of European dominance and characterized by contemporary antagonism toward the hegemonic role of the United States. The major Asian players in the Middle East have not been colonizers or occupiers and they have far less of an emotional stake in the Arab-Israeli conflict. On the one hand, that means that they approach political issues and unresolved conflicts with what some would argue is a cynical, laissez-faire attitude, perhaps exemplified by China's initial indifference to human rights abuses in Sudan. However, the upside is that the Asians do not interfere directly in Middle East politics and therefore enjoy good relations with most states. How long they can sustain their hands-off approach is questionable if, by virtue of their economic dominance and their own strategic stakes in the region, they get drawn into the messiness of Middle East politics at a time when the United States becomes disillusioned by the burdens of hegemony.

In the meantime, it is very much in the interests of both the U.S. and the Asian countries to reach common agreements on the importance of preventing further conflict in the region and jointly assuring the security of the increased maritime traffic across the Indian Ocean. Cooperation on meeting the piracy challenge off the coast of Somalia is an early test of this new strategic reality.

Kemp's Nixonian/Kissingerian tones are well earned.  He's "the Director of Regional Strategic Programs at the Nixon Center."  The article summarizes his new book on the subject.

The reason why there won't be "another Iraq" is that there never should be a situation where the US thinks it needs to hog all the control like it did in Iraq, given this larger emerging reality.

Bullshit detection: China "steals" victory in "gas war" but Shanghai Cooperation Organisation a complete no-show on Kyrgyzstan

What? Nobody got a gun?

Sometimes Foreign Policy gets as hyperbolically goofy as Foreign Affairs is uniformly dull.

Here is a wonderfully over-the-top piece of geopolitical hyping from Alexandros Petersen entitled, "Did China Just Win the Caspian Gas War? While Washington and Moscow had their eyes on each other, Beijing stole the prize."  It was top of the pile in the WPR Media Roundup for the day (with shame to WPR for promoting such excess).  

I will tell you that I hate it when war terminology is applied to international business; I simply find it excessive, misplaced, and designed for nonsensical fear-mongering.

Of course, you can blame much of this on the editors at FP, who juice up the piece with the title, suggesting--yet again--how we've lost another "war"!!!!!!

Except the author notes that America is sharing its revolutionary shale gas technology with China, so maybe both of these two major consumers won't be caring all that much about "gas wars" (a truly doofus term from professionals who should avoid such nonsense) in distant locations down the road.

As for China's "stolen prize," Petersen admits near the end that maybe China will regret relying on unstable regions for energy.  

Ja, just maybe.

Better to read Richard Weitz's sensible, hyperbole-free WPR piece on the Eurasian security organizations, to wit the opening lines:

Perhaps the most surprising feature of the protracted crisis in Kyrgyzstan is what has not happened: Neither of Eurasia's two preeminent regional security institutions, the Collective Security Treaty Organization (CSTO) and the Shanghai Cooperation Organization (SCO), have coordinated a military intervention in that country. 

The mass protests, deaths, and refugee crisis involving perhaps 1 million people has represented one of the most acute challenges to Eurasian stability in the history of either organization, both of which were founded almost a decade ago. In mid-June 2010, the Kyrgyz interim authorities even directly appealed for Russian military intervention on their behalf, but Moscow declined to act military -- either unilaterally or within the framework of either the CSTO or the SCO. Both organizations have offered primarily verbal support and limited humanitarian assistance to their beleaguered member state. Despite expectations, neither organization has yet become a modern version of the Warsaw Pact, using military and police power to keep its client regimes in power.

So given that reality, maybe FP should eschew all the bullshit "war" terminology in their headlines and analysis on resources and energy. It just comes off as embarrassing.

The surge in Iraq did not fix everything!

FT op-ed by David Gardner that reflects the absurdly high bar some experts set for counterinsurgency--as in, "The surge did not erase the layered trauma of tyranny, wars, invasion and occupation."

Well, I guess it didn't.  

But the surge (using that term in the most general sense) did reduce fatalities dramatically and improved security commensurately.  Yes, the Shia won, like majorities tend to in ethnic fights the world over, but the key thing is that the victory was marked by stability and not further bloodletting, and the surge played its role.

As for not making it possible for the current political system to forge a unity government after the last election, that's simply ballooning the surge's purview to ridiculous size.  The key thing to note in the current political paralysis is the lack of widespread violence.

Yes, Iraq has a long way to go, but four free elections in a row can hardly be discounted in a region not known for them. Everybody wanted the occupation to go better, and certainly we learned a ton of lessons, but the truth is, most nation-building efforts are largely irrelevant to the larger process of creating economic connectivity to the outside world, which ensues if there is something local to draw in outsiders and there's just enough security and predictability to allow business to unfold. Once those dynamics come into play, it's primarily up to the locals to demand better of themselves.

The military effort can buy you that time and little else.  So some perspective please.  We keep coming up with these fantastic images of successful nation-building and then decrying the military's inability to make them happen instantly, when history says you don't even start posting grades until a good decade passes.

But it's our desire to do everything ourselves that forces this mindset. If you accept that you'll be just a fraction of the SysAdmin effort, despite manning the bulk of the Leviathan one, then the longer timeline is no big deal because you're not trying to pick up the entire tab. Our problem is simply our inability to cede control to others better suited for the economic integration efforts, which are always led by the most powerful neighbors and rising powers of the age.

When you need to own the victory because you need to own the war, then realizing the postwar success in others becomes infinitely harder.

Chart of the day: China's banks moving on up

Economist story on IPO for China's huge Agricultural Bank, which, BTW, raised about $19B and will end up with $22B when all is said and done--the biggest IPO in history when all the additional possible shares are issued.

The event, says The Economist, "ends a decade-long process to transform China’s huge financial institutions from wards of the state to banks that resemble publicly listed firms in the rich world."

Now that the catch-up has occurred, warns the newspaper,
"success will force the model to change."

So no "Beijing consensus," says The Economist.  "Though neat, such a conclusion looks wrongheaded."

Not that Ag Bank's future isn't bright. It has 320m customers and only 1% of them have mortgages, so growth is guaranteed.

And yes, the government could easily loan and spend its way out of the Great Recession by commanding banks to lend like crazy.

But:

Even admirers, though, cannot fail to spot China's bad-debt problem. Those who think capitalist democracies have an unrivaled talent for generating dud loans should consider the Middle Kingdom.

Bad, politically motivated management in the past meant that by the late 1990s, almost a third of all loans in China were to zombie state-run enterprises, thus requiring China to lead the world in bank bailouts for most of the last decade.

The latest binge, as the newspaper calls it, is likely to trigger similar dynamics in the sense of overbuilding capacity.  Yes, the gov can afford the hit, but that's mostly because the Chinese save at such a high rate, meaning banks don't need to turn to debt markets.

Real change to the system will come, as always, with success.  The more the middle class emerges, the more banks will need to clear up space on balance sheets to loan out money to individuals and small firms, and "The heavy lifting of financing infrastructure and state companies will shift to bond markets."

In the end, China's banking system will not be all that different from the West's.

The concluding argument of the editorial:

China’s banks could then end up looking a lot like banks elsewhere, although the state will still have control. Yet even that could change gradually. At current growth rates China’s banks will need capital injections every few years. The government may tire of these shakedowns—its participation in this year’s equity raisings has been a little grudging—and allow its stake to be diluted instead. And, as China’s banks claim their rightful place among the global leaders, they will find doing big foreign deals is hard when the government has a hand on the steering wheel. The rise of China’s banks is stunning and a little frightening. Yet they are not the pallbearers of market-based finance, just a work in progress.

Beware the bullshit artists who claim China is somehow making a new model of development happen.

To repair infrastructure, US must seek foreign $ & partners

FT story that states "US antipathy to foreign investment in its infrastructure threatens to deprive the country of much-needed capital as a time when state and local governments are struggling with rising deficits."

So warns legendary Felix Rohatyn, famed Lazard banker.

Great quote:

This dislike for foreign ownership is Kafka-esque; much of our country was built on foreign capital.

True enough: we were the rising China of the 19th century and got ahead with tons of foreign direct investment.

Recent polls say Americans are 80% opposed, because, I would surmise, the question is always framed in terms of foreign ownership rather than crumbling infrastructure.

Experts say we ned $2.2T in upgrades and repairs in the next half-decade alone.  Meanwhile, lots of cities are pressing ahead with privatization schemes, but even when US financial entities are involved, these efforts have a checkered history.

Disney's penetration of Asia goes way beyond theme parks

pic here

FT front-pager on Disney expanding its language schools in China, with a goal of almost 150 schools and $100m in revenue. By 2015, it wants to be training 150k Chinese kids each year.

The curriculum features Disney characters, obviously.  A growing Chinese middle class "means there is no shortage of parents willing to pay $2,200 a year for tuition of two hours a week." 

I heard that last bit in spades from the Gymboree international franchise operators: there is almost no limit to what parents will pay in emerging markets to get their kids ahead of the pack--typical of countries on the rise.

The hidden benefit is also fairly obvious, as far as Disney is concerned:

But the schools also enable Disney to forge a bond with a new generation of consumers who may be unaware of the company's characters and stories.

This is crucial because gov quotas on foreign films restrict Disney's marketing there.

The succession is well underway in NorKo

FT full-page "analysis" on recent going-ons in NorKo, as bodies continue to wash up in this succession crisis.

Gist:  Kim Jong Il is clearing out his politburo to stock it with loyalists for his son, Kim Jong-eun, the "young general" (as he is now touted) who needs military "victories" to prove his worth--hence the recent sinking of the SouKo warship.

But since all the major players (SouKo, China, US) are loath to confront Kim on what will likely become a lengthy pattern of increasingly provocations, we should expect them to continue for quite some time.  

And with the ludicrous public promise of making NorKo a "mighty and prosperous nation" by 2012 hanging out there, foreign demons will have to be slain to explain the inevitable shortfall.

The only real variable in the equation is China becoming unhappy enough with these shenanigans to stop using its UN Security Council veto to shield the regime.  Other than that, we're waiting on the Romanian scenario, by which a cabal of senior NorKo officials move against Kim Jong-eun once the old man dies.

The Chinese dream by way of a generation of rising "little emperors"

Pu Yi--not the last little emperor capable of wreaking havoc in China.

FT op-ed by Geoff Dyer on the Me Generation of single children in China, "who want more from their lives than their parents could dream of."

Dyer contextualizes the recent labor unrest as part of a generational shift.  Past generations may have been willing to "eat bitterness," but the upcoming crop is not.  Long gone are the 18-year-old females just off the farm who will take any abuse the system heaps on them--just to hold onto that factory job.

According to Chinese economist, Andy Xie:

Today's young adults and their parents may as well be from different centuries.  They want to settle down in big cities and have interesting, well-paying jobs--just like their counterparts in other countries.

Remember that when you're sold the Chinese threat of--as Robert Kaplan so eloquently put it--a "literate peasantry" hell-bent on conquering the world for its resource needs.  The generational shift described here doesn't sound like a cohort willing to sacrifice all that much.  Instead it sounds like one ready for its due entitlements up front.

For the tens of millions of young Chinese graduates, buying a flat is a central part of their plan to live a modern, middle-class life. Young Chinese men feel the social pressure the most. The first time someone told me his chances of getting married would be ruined if he could not buy an apartment, I thought he was joking, yet it is a refrain one hears constantly. Chinese mothers-in-law to-be, it seems, can be an unforgiving bunch.

Yes, when poked, these angry young men will sound off in the most nationalistic ways, but don't assume that translates into a willingness to march on Beijing's call.

... it is not a contradiction for young people to be more patriotic, but also more demanding and individualistic.  Modernisation has unleashed powerful forces--pride and confidence in China's achievements but also high expectations about the life that can be lived. The signs of restlessness among young Chinese make for a less predictable political future.

Whenever I've had the chance to lecture before Chinese college students, I've always come away impressed by the fierceness of their Kantian mindset: they fervently believe that China can have a good life and never be forced to fight any ways to defend it. I think that's naive, but I also think it shows how little stomach exists within this Me Generation for fighting their way to the top.

In short, the 5GW struggle has already been won.

India's pharma industry grows up

NYT story on how India's pharma industry is both moving up the ranks and consolidating its position as a low-cost manufacturer. The development recalls Andy Grove's arguments about losing manufacturing and thereby losing the long-term innovation edge. This piece gives you the sense of how hard--if not impossible--it will be to stem such losses in existing mature industries, which says we do best to follow his advice in new industries.

The gist of the piece:

India’s drug industry — on track to grow about 13 percent this year, to just over $24 billion — was once notorious for making cheap knockoffs of Western medicines and selling them in developing countries. But India, seasoned in the basics of medicine making, is now starting to take on a more mainstream role in the global drug industry, as a result of recent strengthening of patent law here and cost pressures on name-brand drug makers in the West.

And while the Indian industry has had quality-control problems, it nonetheless benefits from growing wariness about the reliability of ingredients from that other historically low-cost drug provider — China. The United States is India’s top export customer for drugs.

India is becoming a “base for manufacturing for the global market,” said Ajay G. Piramal, the chairman of Piramal Healthcare, a drug maker based in Mumbai. Eventually, in Mr. Piramal’s perhaps overly optimistic forecast, only the very first and very last steps of the business — molecular drug discovery and marketing — will be run by the West’s global drug giants.

Those companies “don’t create much value” in the steps in between, he said.

It is not only Indian executives, though, who are bullish about the pharmaceuticalsindustry here. Analysts, research groups and consultants have been making similar predictions in recent months.

Big pharmaceutical companies have come calling, too. This year, Mr. Piramal sold his generic drug business to Abbott Laboratories for $3.7 billion, the latest in a string of takeovers and joint ventures here.

Like China, India seeks to move up production chains as rapidly as possible:

The shift to pharmaceuticals is part of a subtle, broader shift in the Indian economy. Moving beyond less sophisticated, outsourced services like telephone call centers, India has been advancing up the business value chain, particularly in law and medical diagnostics. Now it is showing a flair for manufacturing, particularly in goods demanding high-skill production and superlow prices.

Which says we have no alternative but to do the same.